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Easing the Financial Weight of the Sandwich Generation

The cost of living is constantly on the rise and it’s challenging enough for the average family to cover housing costs, day-to-day expenses and save for life goals without struggling with the financial challenge of being pulled in multiple directions to support family members across generations.

The term “sandwich generation” was originally coined to refer to people in their 30’s and 40’s who had to care for both their aging parents and their children. Times have changed however, and today people are getting married and starting families later in life to allow time for travelling, pursuing dreams and furthering careers before choosing to settle down. Furthermore, average lifespan has increased creating the situation where adults between the ages of late 30s to 60s find themselves sandwiched between two generations who need emotional, physical and financial support. Today’s sandwich generation carries the financial responsibility of young children, teens and even young adults, who are often struggling with the financial transition to adulthood, in addition to the skyrocketing costs of caring for aging parents.

According to a Desjardin study a fifth of professionals in Canada are working and taking care of both their children as well as an older family member. Never before has this phenomenon unfolded to such an extent.

There are a multitude of factors that have made this commonplace:

Raising a child is no small expense and nowadays continues on into adulthood. Given the significant tuition price of post-secondary education, parents wherever possible are assisting with the investment in their children’s education. In some cases, students obtain student loans, which brings looming debt for years to come. Many parents try to ease this burden by helping their children financially.

Transitioning to adulthood from a financial standpoint can be extremely challenging for young people, given the current job market and the expensive cost of living. According to a CIBC study, two thirds of parents say that they have felt the financial impact of supporting adult children. In fact, one in four parents who support their adult children spend more than $500 a month.

Increased lifespan can now be expected, is a precious gift in that aging parents can now spend more time with family and loved ones. This brings with it, a requirement of a larger nest-egg. Additionally, many times, those later years in life encompass mental and physical illness and the price of care can be astronomical. In the instance where an elderly parent hasn’t saved sufficiently to cover for their future life-expenses, the responsibility falls on their adult children.

It is easy to understand why the sandwich generation has so many competing financial priorities and are pulled in so many different directions. This often results in their having no choice but to make their own savings their lowest financial priority. By not prioritizing their own retirement savings, the cycle of having the next generation support them at a later stage of their lives, continues.

So what is a family to do when the finances of three generations are so tightly intertwined and strained? It starts with open communication, careful planning and recognizing that each generation has a key role to play:

Grandparents: Making the most of the current situation

It is obviously too late for elderly grandparents to head back to work to generate more income, however, it isn’t too late to make the most of the assets they have. If they have funds saved, ensuring they are properly invested is key. Someone in their 70s may still have 20 years to live and leaving those funds in cash isn’t recommended as it won’t even keep up with inflation.

Another effective solution is to make use of a reverse mortgage if the aging grandparent owns a home with equity. Reverse mortgages allow for up to 55% of the home’s equity to be taken out in a lump sum or in multiple installments, with no requirement to make a payment until the house is vacated at some point in the future.

This quick and simple solution could prove to be very useful in helping cover the cost of elderly care, supplementing monthly cashflow or contributing to the expenditures across the three generations. Some older Canadians who find themselves with significant home equity may be in a position to financially help their adult children or first time home buyer grand children with a monetary gift.

The Sandwich Generation: Walking a fine line

For the generation in the middle, careful planning and scrutiny is critical. This may require a significant mindset shift from the carefree ways of being a double income family with no children, a few years prior. Luxury and travel now need to be replaced with budgeting and deliberate tracking. In fact, these issues should already be taken into consideration as soon as children are brought into the picture.

It is critical to be mindful of every dollar that comes in the door and prudently allocate it towards life’s necessities, which also includes an emergency fund. When looking out for three generations, the chance of unexpected costs arising is much higher.

It would be helpful to explore all options in order to earn more to ease the burden. Although free time isn’t easy to come by and taking on another job may be difficult, exploring another stream of income could significantly reduce financial stress. Another option is to aim for and take steps towards being promoted at work with an accompanying raise.

Lastly, given an already tight financial situation, it is important to plan for a worst-case scenario such as a job loss, by making sure to have access to credit before it’s needed. Having a line of credit or a home equity line of credit will ensure a backup plan during unexpected circumstances.

Children: Breaking the cycle

The sandwich generation wouldn’t find themselves where they are today if they and their parents had sound financial understanding and began earning, saving and investing at a younger age. This is why is it imperative to teach children about money and budgeting from an early age. Open a bank account for them and teach them about saving their allowance and understand the true costs of living. Encourage part-time work even if it is a lemonade stand or delivering the local newspaper with adult supervision.

While the issues concerning financial challenges in a family are not easy to discuss with children, it is a necessity and can be used as way for a family to pull together and is certainly a teachable opportunity. This will shape their understanding of finances and can set them up for a lifetime of financial success.

While finding yourself caring emotionally and financially for both aging parents and children at the same time can be challenging, it’s clear that being part of the sandwich generation isn’t synonymous with financial stress. With careful planning and getting the whole family involved, it can be an opportunity for everyone to work together to become closer and leave a legacy of financial success for years to come.

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